Legal pain keeps on cropping up for the Reserve. Both the Denver Post and the Rocky Mountain News report that the state of Colorado, in the form of state securities commission Fred Joseph, filed a lawsuit Tuesday against the New York City-based money fund manager that Bruce Bent built.

A spokeswoman for the Reserve declined to comment to the Rocky Mountain News.

The lawsuit revolves around about $525 million that the Colorado Surplus Asset Fund Trust (CSAFE) had in Reserve's Primary Fund prior to the collapse of Lehman Brothers in September. The Rocky Mountain News describes CSAFE as something school and fire districts use "like a checking account."

The suit, which the Denver Post says may be the first of its kind filed against the Reserve by a state, now stems from the remaining $111 million the state has not yet received in distributions (the Reserve has already distributed much of the Primary Fund's assets in the intervening months: see MFWire, 10/23/2008, 10/31/2008 and 12/4/2008), as Colorado fears it will lose $3 million to $5 million of what remains. (However, the Denver Post claims that, according to Joseph, an unnamed "investment adviser hired by the state is backstopping CSAFE investments for losses up to to $3 million," meaning that Colorado might only be out up to $2 million.)

The Denver Post also reports that CSAFE filed to redeem to full $525 million on September 15, before Reserve announced on the 16th that Primary broke the buck and then froze shareholder withdrawals (see MFWire, 9/17/2008).

Several other lawsuits have already been filed over the Primary Fund's demise. See MFWire's archives for details on the Reserve's ongoing legal battles: 9/18/2008, 9/22/2008, 9/24/2008 and 10/21/2008. 

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